Equity execution can be a tricky business. Countering predatory traders has been a
concern for the buy-side ever since
the market became electronic some

15 years ago. Participants have
devised many ways of stopping the
threat but the problem of information leakage and trade disruption
has not disappeared. With MiFID
II putting greater emphasis on best
execution, algorithms need to be in
better shape than ever before.

So what can the industry do toimprove this side of the business?

Buy-siders have certainly rampedup their algorithmic sophistica-tion since rudimentary executionalgorithms came into the marketin the early 2000s. And there isno shortage of them out there—indeed, according to estimates,there are some 1600 algorithmscurrently available to buy-sidersglobally, incorporating anythingfrom volume prediction analytics,market impact models to liquidityheat maps and venue analytics. Thesheer numbers of these differentalgorithms makes selection, perfor-mance measurement, and brokerfeedback difficult. And this has ledto some dissatisfaction. In a reportpublished by Greenwich Associatesin January just 7% of US buy-sideinstitutions said they were happywith the standard broker algo-rithms. Furthermore participantssay that the variation in the per-formance of different algorithmsremains small.

At present the industry continueswith a heavy use of traditional al-gorithms to handle its liquid equityexecution. The likes of VWAP(volume weighted average price) orparticipation algorithms are partic-ularly prevalent and have, generallyspeaking, proven adequate to han-dle large orders on liquid equities.Michel Kurek, head of quantita-tive – cash execution at SociétéGénérale, says that VWAP accountsSociete Generale with participa-tion algorithms second, accountingfor 10% of market volume, partof around 10 standard algorithmsthe bank runs. These will performstandard execution functions wellbut may still need to be managedaccording to conditions.